How the start-up hype could cost people

Start-ups, a trendy hype that favours the few and could cost a lot of people.

Valuations, you probably have heard this word. It describes (in de current start-up enviroment) how valueble a company could be, not how profitable it is. There are a lot of start-ups, too many to even begin to mention but I have a short list. This a were in my opinion the problem starts. Many of these start-ups have investors, small ones and (very) large ones. There a few metrics used in the past that could somewhat calculate the value in dollars (it is the predominant world currency). Which may sound weird and I’m incline to agree. Because there is only one metric, profit.

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This chamath palihapitiya

These valuations and how employees can use them, if they have company shares, is incredibly well explained by Wolf Richter;

Many employees have been able to sell their shares in the secondary market that exists for the shares of startup companies. All these methods allow employees to cash out some of their wealth. And they went ahead and used this moola to buy expensive homes years ago.

So these employees have the opportunity to buy a house or multiple houses. But they have more money then the average person working in logistics or retail for example. So housing prices tend to rise. Brokers just react towards this and property developers also see it as an opportunity. Nothing wrong with that. So that is in part why housing prices have been rising.

Let’s get back to these valuations, this because of an excess of capital and the enormous, I call them, private subsidies. At the moment there is a lot of money in the system. Wealthy individuals can with ease attract loans with favourable interest rates. With these loans they want to make money, raise venture fund(s). Now comes the interesting part. Chamath Palihapitiya can explain this really clearly, because he is one of the most succesful investors.

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Let’s go somewhat deeper, most of these platforms are SaaS based platforms. They present themselves as platforms, anything that happens outside of their platform does not concern them. These platforms get a lot of private investments, because of their ‘potential’. The strange thing is, profit does not concern them, it is about expension. To me that is business propaganda. Yes, I get it. You have ambitions but you need profit otherwise it is no business. During all those years of certain big businesses whom applied creative book keeping for all kinds of reasons and got millions up to billions of dollars of private investments. They could keep prices really low, this way they have destroyed many small operating businesses who did not have ‘big money’ connections. To me this is bad capitalism.

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Now comes the worst part of bad capitalism. Big start-ups whom haven’t made any profits what so ever, are going public. The average person invest though index funds or other financial instruments or are given false information about startup companies. Many if not all pre-IPO investors will cash out 95% if not all of their current shares during the IPO to not knowing outside investors. Since most of these IPO startups haven’t made any profits what so ever, they are going bankrupt within a few years, leaving retail investors with absolute garbage.

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These are reasons and many more why startups could cost people. There also will be people who will advance their careers enormously but those are the few. Those people who’s careers advanced probably/likely had some business savviness from the beginning, or just luck. Most people including myself are average.